Suspended Director Cannot Reopen CIRP Process After Repeated Eligibility Defaults: NCLT Bengaluru

The Bengaluru Bench of the National Company Law Tribunal (NCLT) on 6 April, refused to permit a suspended director of a corporate debtor to submit a resolution plan at a belated stage after he repeatedly failed to satisfy eligibility conditions under the Corporate Insolvency Resolution Process (CIRP), reiterating the strict time-bound framework under the Insolvency and Bankruptcy Code, 2016.

A Bench comprising Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada dismissed an application filed by the suspended director of Stellence Pharmascience Pvt Ltd, who sought permission to submit a resolution plan after the CIRP had substantially progressed and the Committee of Creditors (CoC) had already approved a plan. It observed:

“Having missed the bus and the case having reached next stage, the clock cannot be turned back in the light of afore-quoted precedents to once again host the applicant.”

The CIRP against Stellence Pharmascience, an MSME engaged in manufacturing active pharmaceutical ingredients, commenced in March 2024. The Tribunal appointed an Interim Resolution Professional, who later became the Resolution Professional with approval of the CoC.

The Resolution Professional issued Form G inviting Expressions of Interest (EOI). Ramachandran Radhakrishnan, a suspended director and erstwhile promoter of the corporate debtor, submitted an EOI, which the Resolution Professional rejected for failure to meet the prescribed net worth criteria.

He then approached the Tribunal seeking relaxation of eligibility conditions applicable to MSME promoters. The Tribunal, by order dated 4 October 2024, granted him an opportunity to comply with the conditions, including deposit of Earnest Money Deposit (EMD). However, he did not comply, leading to dismissal of his application as infructuous.

He later informed the Tribunal that he had secured financial backing from a prospective investor and requested permission to submit a resolution plan at a later stage. The Resolution Professional rejected his request on the ground that he had already lost the opportunity to participate in the process.

He argued that the rejection violated principles of natural justice, especially given the MSME status of the corporate debtor.

The Resolution Professional submitted that the applicant failed to deposit the EMD despite specific directions and that the CoC had already approved a resolution plan, which awaited Tribunal approval. It further argued that the CIRP could not be reopened for fresh submissions at that stage.

The Tribunal held that although it does not interfere with the commercial wisdom of the CoC, it ensures compliance with the statutory framework under the Insolvency and Bankruptcy Code.

Emphasising the time-bound nature of CIRP, the Tribunal observed:

“Nevertheless, after having defaulted at first stage, the Applicant was afforded second chance by this Authority to make the requisite deficiency to be eligible for being considered by the CoC. He however defaulted again as he was probably still searching for an investor and did not have sufficient funds. Now the present application has been filed almost after six months of the second accommodation armed with a communication of a prospective investor.”

The Tribunal further noted that the CoC had already evaluated eligible resolution plans and approved one with the requisite voting share. It held that the resolution process cannot remain open-ended and cannot pause for a defaulting applicant, nor can it extend special consideration solely because the applicant served as a suspended director of an MSME.

Rejecting his submissions, the Bench held that he could not attribute his repeated non-compliance to the CoC or the Resolution Professional. It stated:

“Having twice failed to meet the essential criteria, it does not lie in the mouth of Applicant to attempt masking his failure by impugning the conduct of CoC and RP as also raising flimsy grounds of on-availability of funds/investor in October 2024 to submit EMD as if it was also their responsibility.”

Accordingly, the NCLT dismissed the application and imposed costs of Rs. 2.5 lakh.

For Applicant: Advocate Bharat Nenwani

For Respondents: Advocate Bishwajit Dubey, Add AG (Chattisgarh) and Shashank Nagendran